Early-stage VC byFounders closes €100M fund to back Nordics and Baltics startups

ByFounders, a relatively new early-stage venture capital firm targeting the Nordic and Baltic regions of Europe, is officially launching its first fund today.

The debut fund has closed at €100 million and will be used to back tech startups at pre-seed, seed and in some instances Series A. ByFounders will also do follow on investments to maintain pro-rata ownership in its most promising portfolio companies.

However, what perhaps makes byFounders stand out from the crowd is its LP structure. Along with institutional investors, such as anchor investor Danish Growth Fund, byFounders’ backers includes more than 50 entrepreneurs.

Dubbed the “Collective,” the group of individual LPs include founders behind some of the region’s most renowned companies including Skype, Zendesk, Kahoot, Unity, Tradeshift, Sitecore and Vivino.

The idea is that byFounders portfolio companies can benefit from unique access to “deep industry and operational knowledge” — from scaling, recruiting, international expansion to raising further funding — in addition the Collective’s global network and ties to Silicon Valley.

ByFounders’ other institutional investors are Isomer Capital, Draper Esprit, Digital Garage, Danske Bank, as well as a number of prominent family businesses from the Nordics.

Founded by Eric Lagier and Tommy Andersen, the VC firm has offices in Copenhagen and San Francisco and has already backed 11 startups: Corti, Peergrade, Simple Feast, Cobalt, Spiio, SafetyWing, Drugstars, Omnio, Qurasense, Tame and Uizard. It plans to make a further 30 investments over the next three years.

Below follows an email Q&A with byFounders Managing Partner Eric Lagier, where we discuss the fund’s remit, how byFounders’ LP network aims to give it an edge, ties to Silicon Valley, and the thorny issue of Brexit.

TC: byFounders says its sweet spot is seed and occasionally Series A rounds. Can you be more specific with regards to stage and cheque size you plan to write?

EL: byFounders’ €100m fund size and operational guidance from our 50-strong collective of the region’s most successful entrepreneurs means that we’re able to engage early with initial investments of e.g. €200.000 in pre-seed in companies like UIzard, Safetywing and Qurasense, onto €1-2m seed stage rounds like Corti and Omnio, and even do larger Series A rounds of up to €5m. The latter, we’ve done with the likes of Cobalt and SimpleFeast as they expand internationally. Our approach means we still reserve a large pool of capital to protect our ownership pro rata in later stages.

TC: What are the types of companies, technologies, business models or sectors you are focussing on?

EL: Evidently, our current portfolio is a mix of tech companies across verticals like healthtech, edtech, fintech, foodtech, IoT, B2C and B2B. Common to all of them is that they’re founded by great Nordic and Baltic teams with global ambitions. Successfully scaling a business is incredibly hard, but it’s crucial to do so almost from day one. We created byFounders to give the next generation of new Nordic entrepreneurs access to the collective learnings and leaders behind today’s unicorns.

TC: What can we expect byFounders to bring to the Nordics that doesn’t already exist, aside from another €100 million of venture capital?

EL: What sets us apart is the depth and breadth of our industry expertise and practical advice on offer from more than 50 people who have faced and overcome the challenges that you will meet as a founder.

Each member of the Collective is actively involved with our portfolio companies and they have all invested in the fund. We are basically inviting the next generation of founders into the “hall of fame” of Nordic and Baltic founders. The energy and potential unleashed from this is unparalleled.

TC: You say that a shortage of local funding sources has pushed many Nordic and Baltic startups to relocate to the U.S., but why is this a problem?

EL: Historically, many Nordic tech companies like Skype, Unity, Zendesk, Tradeshift have had to relocate in their pursuit for capital, talent and markets. The emergence of Northzone and Creandum, namely in Sweden, meant that companies like Spotify, Klarna, iZettle were able to stay local and help build a strong tech community that continues to feed and accelerate local entrepreneurship and the number of startups created here.

The good news is that many of the founders that once upon a time left the Nordics and Baltics, like Sten Tamkivi (Skype, Teleport), Jakob Jønck (Endomondo, SimpleFeast), Morten Primdahl (Zendesk), David Helgason (Unity), Michael Drejer (ProPeople) and Mikkel Hippe Bruun (Tradeshift) have all returned from Silicon Valley by now. They represent a huge untapped potential of knowledge that we are unleashing to help the next generation of founders.

The reality is that today you don’t need to relocate your business to get funding and be successful. This is a trend we’re increasingly seeing and contributing to in the Nordics.

The Nordics and Baltics have incredibly strong ecosystems that have in part been created by the willingness of our governments to work with entrepreneurs and tech companies, as well as by universities and society embracing tech-focused education. I believe the change in dynamics, in part, has been caused by seeing companies relocate, making nations’ lose out on wealth creation and a highly skilled workforce.

TC: You claim to have 50+ founders as LPs. Will this also be how you source deal-flow or how might this be a competitive advantage for the startups you back?

EL: More than one-third of all our deal-flow is generated by our 50+ byFounders Collective. We benefit from getting strong, qualified endorsements of new investment opportunities from our network of proven founders. In terms of our portfolio companies, our Collective represents unparalleled access to knowledge, expertise and networks. You can get capital anywhere these days, but with byFounders you get qualified operational guidance and game changing introductions which increases the likelihood of your success as a founder.

TC: How does byFounders think about Brexit? Are you long or short on the UK leaving the EU and does it have any bearing on the Nordics ecosystem?

EL: Despite Brexit, London looks likely to retain its position as the VC capital of Europe for now, but it’s still uncertain how access to talent and access to markets will be impacted. We all know that any tech startup’s success depends on the trinity of access to capital, talent and markets and byFounders is further strengthening the Nordic ecosystem at a time of uncertainty across the region.

TC: You are talking up byFounders’ ability to build bridges to Silicon Valley. Can you be more specific?

EL: You no longer need to leave the Nordic region to build a world leading tech company, but at the same time it is a massive tailwind to have someone on the ground in Silicon Valley that can help fast track you into the right conversations.

After Skype and Tradeshift, I moved to San Francisco where I have lived for the past eight years building and then exiting my own startup to HP and serving as advisor for 500Startups. During this time, I have built up a strong network of other tech entrepreneurs and investors that have helped bring scale and growth to early stage companies.

Many Nordic and Baltic founders venture to Silicon Valley to address a global market, yet it’s the equivalent of entering this new room in complete darkness and stumbling their way around. The majority of our 50+ byFounders Collective either live or have lived here, and together we help “turn the light switch on” and put our portfolio companies on a fast track to access additional capital, talent and billion $ markets.

TC: What is the biggest change you’ve seen within the Nordics (and Baltics) ecosystem in the last 5 years, and what needs to happen next to maintain the current momentum?

EL: Standing on the shoulders of success of Skype, Spotify, Zendesk, Tradeshift, Unity, etc, it’s been very encouraging to experience how the Nordic and Baltic ecosystem have grown an identity of its own as a global tech hub. Never has the region been able to attract so much attention from investors. As an example, three of Sequoia Capital’s best performing portfolio companies are from here – Unity (Denmark), Klarna (Sweden) and Medalia (Norway).

This also means that even though we are doing great, we need to work together and keep supporting each other across borders in order to keep punching above our weight globally. We see byFounders playing an important role in facilitating this and helping to maintain the momentum.

TC: What is the biggest threat to the continued success of the Nordics tech ecosystem?

EL: As the Nordic tech ecosystem scales rapidly, we quickly face resource constraints given our small local pool of talent and high barriers to entry. Key to success going forward is for us to attract talent from outside the Nordics and to retain them.

TC:. Does the tech press pay enough attention to the region, given it has produced a number of Europe’s most successful tech companies in recent times? If the answer is no, what is the one Nordics story that you feel no one has yet properly told?

EL: No. We all know too well the stories of the creation of Facebook, Google, Amazon etc, while few actually know the story of Nordic and Baltic unicorns Skype, Zendesk, Spotify, Supercell, Klarna, iZettle, Unity, Transferwise, Taxify, Rovio, Sitecore, JustEat, Tradeshift, etc. The common denominator is that they succeeded “against all odds”.

With byFounders, we have come together because we have strong stories to tell and we want to help guide the next generation of Nordic and Baltic founders to build global companies, however, this time not “against all odds”.